Agents Behaving Badly
Last year, Americans earned about $21.8 trillion in personal income. Uncle Sam stepped in to intercept $4.9 trillion of that haul in personal income taxes. Now, moving nearly a quarter out of every dollar America earns to Uncle Sam’s pocket is a pretty monumental task. So, our Internal Revenue Service works to manage that process. Usually, that’s an administrative task involving ordinary withholdings, collections, and reporting. Other times, it’s investigative, ferreting out taxpayers who cross lines to keep more in their pocket. If you’re doing things like backdating documents or hiding financial information, the IRS is probably going to want to know why.
But sometimes, the IRS and its associates cross lines themselves. A couple of recent stories shine a light on how that happens and raise questions about how to handle those offenses when they’re exposed.
Tax returns are supposed to be confidential. But that’s not always the case, especially if you’re rich and famous. A month before the 2020 election, the New York Times published a summary of 20 years of former president Trump’s returns. At the time, Congress was fighting in court for access to those documents. Clearly, someone had leaked them for political gain. Yet the Times stated that all of the information they obtained “was provided by sources with legal access to it.”
A year later, the independent newsroom ProPublica published an expose called The Secret IRS Files based on “a vast cache of IRS information showing how billionaires like Jeff Bezos, Elon Musk, and Warren Buffet pay little in income tax compared to their vast wealth – sometimes, even nothing.” Among the salacious details: in 2011, Bezos paid no tax and collected $4,000 in child tax credits. (In all fairness, kids are expensive.) Clearly, someone leaked the information to embarrass the high-income, low-tax billionaires. Yet ProPublica declined to disclose how it got the returns in the first place, and argued that “the public interest in knowing this information at this pivotal moment” outweighed legitimate privacy concerns.
Now we know how the Times and ProPublica got their hands on that information. Last week, prosecutors announced they had charged a former IRS contractor named Charles Littlejohn with leaking the returns. Littlejohn looks like he’s ready to plead guilty, and the charge carries up to five years in federal housing. But the story suggests the Service could do a better job protecting taxpayer information, even from its own staff and authorized personnel.
Last month also brought news from an ongoing IRS fight against “syndicated conservation easements.” These arrangements let taxpayers invest in partnerships that buy land to donate for conservation. They typically reward investors with enough in tax deductions to cut their tax by more than their actual investment. The IRS has taken dead aim at these partnerships, claiming that abusive valuations are the secret to magically multiplying those savings.
But get this . . . it turns out that in several easement audits, IRS supervisors backdated signatures approving millions of dollars in penalties. (We can call that “the crime.”) Even worse, their attorneys swore the signature dates were accurate and misled courts for months after the falsification was discovered. (We’ll call that “the coverup.”)
The IRS has announced they’ll settle those specific cases and drop the penalties. Fine. But the IRS has won criminal convictions against easement sponsors and marketers who backdated signatures themselves. If that’s enough to send someone to jail, what should the IRS do with their own miscreants?
The bureaucrats who run the IRS are, for the most part, genuinely interested in administering the tax laws fairly, so that everyone pays their fair share under the law. But that has to be a two-way street. So count on us to help keep the IRS honest as we work to help you pay less!